Last updated: 26 Feb 2024 03:30 Posted in:
The European Commission has downgraded its growth forecast to 0.9% for the EU and 0.8% for the euro area, although inflation rates are expected to fall quicker than previously predicted.
The Commission’s latest Winter Economic Forecast projects growth “at a modest 0.9% in the EU”, a decrease from the previously expected 1.3%, with the euro zone’s forecast similarly adjusted to 0.8% from an earlier 1.2%.
The report says that “a gradual resurgence is on the horizon for the latter half of 2024, bolstered by diminishing inflationary pressures, an expected increase in real wages, and a robust labour market stimulating consumer spending”.
A pick-up is expected in 2025, with a predicted growth of 1.7% in the EU, unchanged from the autumn forecast, and 1.5% in the euro area, down from the previous 1.6%.
Inflation is predicted to ease more swiftly than previously seen. The Harmonised Index of Consumer Prices (HICP) inflation in the EU is set to decline faster from 6.3% in 2023 to 3.0% in 2024, further dropping to 2.5% in 2025.
The euro area mirrors this trend, with inflation rates forecasted to slow from 5.4% in 2023 to 2.7% in 2024 and 2.2% in 2025. The 2024 inflation forecast for the euro area has been revised down from 3.2%, while 2025 was left unchanged.
In the Forecast the Commission said: “Despite some encouraging signs, the European Commission remains vigilant of looming economic risks, including the phasing out of energy support schemes, sustained geopolitical frictions, and potential escalations in Middle Eastern conflicts affecting Red Sea trade routes.”
It also said that “labour shortages represent a bottleneck to economic activity, while a trade-driven recovery is also unlikely amid stagnating export and import dynamics. On a more optimistic note, market financing conditions have eased recently, with expectations of continued relief facilitated by more accessible bank lending.”
The Commission also found that, in 2024, all EU economies are anticipated to grow, although disparities are notable. A number of smaller economies are expected to see their GDPs increase in the range of 2-3% in 2024, in contrast to the larger economies, which are likely to face more challenges.
“A gradual resurgence is on the horizon for the latter half of 2024, bolstered by diminishing inflationary pressures, an expected increase in real wages, and a robust labour market stimulating consumer spending”.
Winter Economic Forecast, European Commission